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 Commonwealth of Australia 2001

ISBN 1 74037 073 2

This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from Info Products. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, Info Products, Department of Finance and Administration, GPO Box 1920, Canberra, ACT, 2601.

Publications Inquiries:

Media and Publications Productivity Commission

Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: maps@pc.gov.au General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200

An appropriate citation for this paper is:

Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra.

The Productivity Commission

The Productivity Commission, an independent Commonwealth agency, is the Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians.

The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole.

Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244.

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IV TERMS OF REFERENCE

Terms of reference

I, ROD KEMP, Assistant Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998, hereby refer the attached list of legislation and associated

regulations, relating to superannuation, to the Commission for inquiry and report within 9 months of receipt of this reference. The Commission is to focus on those parts of the legislation that restrict competition, or that impose costs or confer benefits on business. The Commission is to hold hearings for the purpose of the inquiry.

Background

2. This review fulfils a commitment made in the Commonwealth Legislation Review

Schedule to undertake National Competition Policy reviews of these Acts. This review will not be addressing taxation issues affecting the superannuation industry, other than levies referred to in the attached Schedule.

Scope of Inquiry

3. The Commission is to report on appropriate arrangements for regulation taking into

account the following:

(a) legislation/regulation which restricts competition should be retained only if the

benefits to the community as a whole outweigh the costs; and if the objectives of the legislation/regulation can be achieved only by restricting competition.

Alternative approaches which may not restrict competition include quasi-regulation and self-quasi-regulation.

(b) in assessing the matters in (a), regard should be had, where relevant, to effects on the environment, welfare and equity, occupational health and safety,

economic and regional development, consumer interests, the competitiveness of business including small business, and efficient resource allocation.

(c) the need to promote consistency between regulatory regimes and efficient

regulatory administration, through improved coordination to eliminate unnecessary duplication.

(d) there should be explicit assessment of the suitability and impact of any standards

referenced in the legislation, and justification of their retention if they remain as referenced standards.

(e) compliance costs and the paper work burden on small business should be

reduced where feasible.

4. In making assessments in relation to the matters in (3), the Commission is to have

regard to the analytical requirements for regulation assessment by the Commonwealth, including those set out in the Competition Principles Agreement. The report of the Commission should:

(a) identify the nature and magnitude of the social, environmental or other

economic problem(s) that the legislation seeks to address; (b) clarify the objectives of the legislation;

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(c) identify whether, and to what extent, the legislation restricts competition; (d) identify relevant alternatives to the legislation, including non-legislative

approaches;

(e) analyse and, as far as reasonably practical, quantify the benefits, costs and

overall effects of legislation and alternatives identified in (d);

(f) identify the different groups likely to be affected by the legislation and alternatives;

(g) determine a preferred option for regulation, if any, in light of objectives set out in 3; and

(h) examine mechanisms for increasing the overall efficiency, including

minimising the compliance costs and paper burden on small business, of the legislation and, where it differs, the preferred option.

5. The Commission should take account of any recent substantive studies relevant to

the inquiry.

6. In undertaking the review, the Commission is to advertise nationally and consult with

key interest groups and affected parties.

7. The Government will consider the Commission’s recommendations, and the

Government’s response will be announced as soon as possible after the receipt of the Commission’s report.

ROD KEMP 7 FEB 2001

[reference received 7 February 2001]

Schedule

The following Acts and their associated Regulations are to be reviewed:

Superannuation (Self Managed Superannuation Funds) Taxation Act 1987

Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991

Superannuation (Resolution of Complaints) Act 1993

Superannuation Industry (Supervision) Act 1993 – excluding provisions dealing with:

- those aspects of the regulation and supervision of self managed superannuation

funds that were covered by Superannuation Legislation Amendment Act (No. 3) 1999 and subsequent Regulations;

- the superannuation investment rules (section 66 and Part 8 of the Act); and

- matters covered by the draft Financial Services Reform Bill (previously

CLERP 6).

Occupational Superannuation Standards Regulations Applications Act 1992

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VI ACKNOWLEDGMENTS

Acknowledgments

The Commission wishes to thank the people and organisations which provided valuable information and views on issues covered during the course of the inquiry.

Commissioners also express their appreciation of the professional assistance which they received from the staff who worked on the inquiry.

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Contents

Terms of reference IV Acknowledgments VI Contents VII Abbreviations XIII Overview XV

Options for modifications to the SIS legislation XX

Preferred option XXX

Other legislation under review XXXI

Recommendations XXXVI

Findings XL

1 Background to the inquiry 1

1.1 Terms of reference 1

1.2 Legislation under review 2+

1.3 Analytical framework 3

1.4 Participants’ views 6

1.5 Conduct of the inquiry 7

1.6 Report structure 7

2 The superannuation industry 9

2.1 Regulatory environment 9

2.2 Superannuation asset growth and development 12

2.3 Financial structure of the industry 17

2.4 Industry composition 20

2.5 Operating costs 25

3 The SIS legislation 31

3.1 Overview of the SIS legislation 31

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VIII CONTENTS

3.3 The SIS Act and retirement incomes policy 37

4 SIS legislation: restrictions on competition 39

4.1 Trustees 39

4.2 Custodians 56

4.3 Approved auditors and actuaries 60

5 The SIS legislation: compliance cost concerns 69

5.1 Introduction 69

5.2 Requirements governing operations of superannuation entities 71

5.3 APRA reporting requirements 91

6 The SIS legislation: other provisions under review 107

6.1 Trust and trustee requirements 108

6.2 Requirements governing operations of superannuation entities 117

6.3 Investment rules 123

6.4 Provisions defining annuities and pensions 128

6.5 Exemption of some public sector superannuation schemes 131

6.6 Administration 136

7 Modifications to the SIS legislation 145

7.1 Option 1 — improve specific areas of the legislation 147 7.2 Option 2 — enhance the licensing of superannuation entities 149

7.3 Option 3 — remove duplication of compliance 161

7.4 Option 4 — revise the structure of the legislation 171

7.5 Preferred option 175

8 Superannuation (Resolution of Complaints) Act 1993 177

8.1 Background 178

8.2 Overall assessment of disputes resolution 181

8.3 Alternative means of external disputes resolution 185

8.4 Assessment 195

8.5 Possible modifications to Tribunal 198

9 Other legislation under review 203

9.1 Providing for financial assistance in some ‘failure’ situations 204 9.2 Funding supervision of self-managed superannuation funds 211

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9.3 Occupational Superannuation Standards Regulations

Application Act 215

A Conduct of the inquiry 219

A.1 Introduction 219

A.2 List of submissions 219

A.3 Visits 221

A.4 Public Hearings 223

References 225

BOXES

1 Participants’ views XIX

1.1 Legislation review principles set out in the Competition Principles

Agreement of National Competition Policy 4

1.2 Types of regulations which may restrict competition 5

1.3 Analytical requirements for Commonwealth regulation impact

statements 5

3.1 Superannuation entities covered by the SIS Act 32

3.2 The parts of the SIS Act 33

4.1 The disqualified person test 40

4.2 Conditions of APRA’s instrument of approval to trustees 41 4.3 An example of an approved trustee which is independent of

members and does not operate on a commercial basis 42

4.4 Custody requirements for APRA-supervised entities 57

4.5 Compliance audits 61

5.1 Interaction between Modification Declaration 23 and deprivation 103

6.1 The characteristics of a trust under general law 108

6.2 Putting the investment covenant into practice 125

6.3 Some types of annuities and pensions covered under the SIS

legislation 129

6.4 Principles of the Heads of Government Agreement relating to public

sector superannuation schemes 133

6.5 Example of a circular to provide guidance on meeting a

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X CONTENTS

7.1 Problems in small corporate funds 150

7.2 Financial Services Reform legislation 159

7.3 Areas of dissimilarity between the SIS Act and the MIA 165 8.1 ASIC Policy Statement 139: Approval of External Complaints

Resolution Schemes 186

FIGURES

1 Superannuation assets, June 1983 to June 2001 XV

2.1 Superannuation coverage, 1983 to 2000 11

2.2 Superannuation assets, June 1983 to June 2001 12

2.3 Superannuation as a share of total private wealth, 1983 to 2001 13

2.4 Household saving and net worth, 1982-83 to 2000-01 16

2.5 Asset allocation, June 2001 18

2.6 Contribution to growth in total superannuation assets by fund type,

June 1995 to June 2001 24

7.1 Regulation-making versus standard-setting processes 173

9.1 Awarding financial assistance 206

TABLES

1 The superannuation industry, June 2001 XVI

2 Selected elements of entry requirements applying to the provision of

services to superannuation funds XXI

2.1 Gross superannuation contribution flows, 1995-96 to 2000-01 14

2.2 Superannuation assets by fund type, 2000 to 2020 16

2.3 Proportion of members in defined benefit and accumulation funds,

1982-83 to 1999-2000 19

2.4 Funds regulated by APRA, June 2001 21

2.5 The superannuation industry, June 2001 23

2.6 Number of superannuation funds, June 1995 to June 2001 23

2.7 Average fund size, June 1995 to June 2001 24

2.8 Administration costs by type of fund, 1999-2000 26

2.9 Administration costs per member per week, 1999-2000 27

2.10 Fund administration costs, 1999-2000 28

4.1 Funds with approved trustees, July 2001 43

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5.1 Contribution and payment standards in the SIS legislation 72

6.1 Public sector superannuation schemes 132

6.2 APRA superannuation releases 139

7.1 Covenants and duties in the SIS Act and the MIA 163

8.1 Complaints resolved/withdrawn, 2000-01 180

8.2 Data on operations of external disputes resolution bodies 190

9.1 Basic levy for self-managed superannuation funds 212

9.2 Late lodgment amount 213

A.1 List of submissions 220

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Abbreviations

ACTU Australian Council of Trade Unions

AIST Australian Institute of Superannuation Trustees

APRA Australian Prudential Regulation Authority

ARISA Australian Retirement Income Streams Association Ltd

ASFA Association of Superannuation Funds of Australia

ASIC Australian Securities and Investments Commission

ATO Australian Taxation Office

BIO Banking Industry Ombudsman

ERF Eligible Rollover Fund

FICS Financial Industry Complaints Service

FSR Act Financial Services Reform Act 2001

IEC scheme Insurance Enquiries and Complaints scheme

IFSA Investment and Financial Services Association

Jacques Martin Jacques Martin Industry Funds Administration Pty Ltd

MIA Managed Investments Act 1998

OSSRA Act Occupational Superannuation Standards Regulations Application Act 1992

NTA requirement net tangible assets requirement

RMS risk management statement

SG Superannuation Guarantee

SHAR Superannuation Holding Account Reserve

SIS Act Superannuation Industry (Supervision) Act 1993

SISFA Small Independent Superannuation Funds of Australia

SMSF self-managed superannuation fund

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XIV OVERVIEW

Key messages

• Superannuation savings are growing rapidly and now amount to more than $500 billion. Most of the workforce is covered by superannuation. The community therefore has a strong interest in the prudent management and supervision of superannuation funds.

• The main legislative framework to help ensure that funds are well managed for members is provided by the Superannuation Industry (Superannuation) Act 1993 (SIS Act). The Act is voluminous, complex and in some respects overly prescriptive.

• Overall, however, the Act provides an effective framework for the prudent management of fund members’ interests.

– Most parts which restrict competition are warranted in order to confine the execution of certain tasks to suitably qualified professionals (for example, actuaries and auditors).

• A number of provisions of the Act impose significant compliance costs on fund members, trustees and others. Examples include complex rules relating to the age and employment status of contributors and to when benefits can be paid, and arrangements for the protection of small accounts and lost members.

– Some of these provisions should be modified to achieve the legislation’s objectives in more cost-effective ways, provided that scope is not created for abuse of taxation concessions.

• The Commission’s preferred option is to amend the SIS Act with a view to removing unnecessary restriction of competition and to reduce compliance costs, and to enhance licensing of trustees — given their important responsibility in prudent management of members’ funds.

• More substantial modification of the SIS Act could involve reducing duplication between it and the Managed Investments and Life Insurance Acts faced by certain providers of superannuation. Another option would be to restructure the SIS Act so that it includes only broad objectives and powers, with greater reliance on regulations and explanatory guidelines to specify the operating standards.

– These options, while offering scope for improvement to some in the industry, are not without difficulty. However, the legislative duplication should be reviewed in order to reduce compliance costs faced by providers of retail investment products and life insurance companies.

• The Commission recommends, on balance, that the Superannuation Complaints Tribunal legislation be replaced by a more flexible and cost-effective requirement that funds belong to an approved independent industry-based dispute resolution scheme.

• More transparent arrangements should be put in place for possible provision of assistance to funds seriously affected by fraud or theft.

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Overview

Since the early 1980s, assets under management in superannuation funds have increased from around $30 billion to more than $500 billion in 2001. These assets now comprise 15 per cent of private sector wealth. The rapid growth in superannuation assets is mainly the result of the introduction of award-based contributions in 1986, together with the requirement since 1992 that employers make contributions to funds on behalf of their employees under the Superannuation Guarantee Scheme. Those compulsory contributions will shortly amount to 9 per cent of employee earnings. In addition to compulsory contributions, the assets under management have been augmented by voluntary contributions (stimulated by tax concessions) and by re-investment of the returns on the investments.

Figure 1 Superannuation assets, June 1983 to June 2001

($ billion) 0 100 200 300 400 500 600 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 Superannuation Guarantee commences Award superannuation begins SIS Act introduced Contributions and earnings tax levied Source: APRA (2001k).

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XVI OVERVIEW

An important consequence of these developments is that virtually all employees now hold some superannuation assets. The extent of superannuation coverage of self-employed people is much less, but is also increasing. Member account balances average $23 000, but they differ widely across the various types of funds.

While superannuation saving has grown, there has been little change in total household saving. Superannuation appears to have displaced other forms of saving by households and been accompanied by increased household wealth and higher borrowing.

Industry structure

Superannuation contributions can be made to a diverse range of funds. These include corporate funds, industry funds, public sector funds and retail funds, as well as small funds (with membership of fewer than five people). They provide a variety of superannuation products. The great majority of funds are small self-managed funds regulated by the Australian Taxation Office (ATO). Other small funds and corporate funds constitute numerically the bulk of the funds regulated by the Australian Prudential Regulation Authority (APRA).

Table 1 The superannuation industry, June 2001

Type of fund Funds Member accounts Assets

No. ‘000s % of total $ billion % of total

Corporate or enterprise 3 235 1 570 7 81 15 Industry 139 6 977 30 45 9 Public sector 94 2 846 12 114 22 Retail 274 11 459 49 160 30 Sub-total 3 742 22 852 98 400 76 Small self-managed superannuation funds 214 686 377 2 85 16

Small APRA funds 8 052 10 - 2

-Sub-total 222 738 387 2 87 17

Annuities, life office

reserves, etc na na na 39 7

Total 226 480 23 238 100 527 100

Source: APRA (2001k).

The structure of the industry has been changing continuously. The most notable trends in recent years have been the growth in the number of small self-managed funds and consolidation in the balance of the industry. The number of corporate

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funds has declined substantially. Many small and medium-sized funds have shifted to master trust arrangements with retail funds. This has enabled them to gain benefits from economies of scale in administration and to increase investment choices available to members, as well as allowing employers to concentrate on their core business activities. Over the last five years, the number of retail funds almost halved. However, about half of all member accounts and 30 per cent of superannuation assets are held in retail funds.

Superannuation Industry (Supervision) Act 1993

As superannuation savings are now growing strongly and are a principal source of retirement income, the community has a considerable reliance on and interest in the prudent management of these assets. Poor investment decisions, or fraudulent conduct of funds, can result in significant losses for affected members — particularly for older people in the workforce or retired people who have little chance to re-establish their retirement incomes.

The Government’s use of a combination of compulsion and incentives to ensure widespread private provision of retirement incomes necessarily requires that the conduct of superannuation entities be regulated by legislation. A non-legislative approach (such as an industry code of conduct) would expose the management of superannuation assets to more significant risks and would be unlikely to be acceptable to the community.

For these reasons, legislation was enacted in 1993 to enhance the framework for the prudent management of superannuation funds, with the operations of those funds subject to prudential supervision by independent regulators. It came into operation in July 1994.

The main purpose of this inquiry is to review that legislation — namely, the Superannuation Industry (Supervision) Act 1993 (hereafter referred to as the SIS Act).

It is important to note that this inquiry is not a general review of superannuation policy issues; nor does its scope extend to all parts of the SIS Act. The terms of reference preclude the Commission from reviewing taxation matters and provisions of the Act that have recently been subject to regulation review — such as those dealing with the supervision of self-managed superannuation funds, the ‘in-house’ investment rules and provisions covered by the recently enacted Financial Services Reform Act 2001. In other words, the Commission’s task focuses on those provisions in the legislation governing the prudent management and supervision of

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XVIII OVERVIEW

superannuation funds. The Commission has also been asked to review certain other superannuation legislation, which is discussed below.

The SIS Act is a voluminous, complex and somewhat prescriptive document applying to all regulated superannuation entities, largely because it addresses a range of policy objectives. These include retirement incomes policy, market conduct, information disclosure and prevention of abuse of taxation concessions — as well as prudent management and supervision of funds. It is supported by a substantial volume of Regulations. In addition, numerous circulars and other guidance material have been issued by the regulators to clarify application of the SIS Act and Regulations. Frequent amendments to the Act have added to its complexity.

Three regulators — APRA, the Australian Securities and Investments Commission (ASIC) and the ATO — are responsible for administration of the legislation.

Participants’ views

Participants were generally supportive of the broad objectives of regulation of superannuation entities, and of the requirements imposed on trustees. Indeed, the need for independent prudential regulation backed by legislation was unquestioned. Many, however, expressed concern about the complex and prescriptive nature of the SIS Act.

On the whole, participants considered that the existing legislation has little effect on competition. Nonetheless, some pointed to particular provisions which they considered either limit competition unduly, or add significantly to compliance costs. Many participants said that the major costs of compliance faced by funds derived from tax-related superannuation requirements not under reference, such as the superannuation surcharge legislation.

Approach to the review

As this is a national competition policy review, the terms of reference ask the Commission to focus on those parts of the legislation that restrict competition, or that impose costs or confer benefits on business (considered for this inquiry to include members and trustees of superannuation funds and those who provide services to them). Legislation which restricts competition should be retained only if the benefits to the community as a whole outweigh the costs, and if the objective of the legislation can be achieved only by restricting competition. Alternative approaches which may not restrict competition, including quasi-regulation and self-regulation, are to be considered in these reviews.

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Box 1 Participants’ views

Association of Superannuation Funds of Australia: Despite the strong support for the

conceptual basis upon which the superannuation legislation is premised, ASFA is concerned about a creeping prescription and complexity within the SIS regime and its potential to increase costs and inhibit competition both between superannuation funds and between service providers of superannuation funds. (trans., p. 4)

Australian Institute of Superannuation Trustees: We believe the current prudential

regime is effective in protecting superannuation savings. … [the] current compliance and reporting requirements are in general justified. The cost of compliance with SIS is high, and the complexity of the regime imposes heavy burdens on trustees. (sub. 19, p. 2)

Queensland Government Superannuation Office: Whilst the general principles

underpinning the SIS legislation are appropriate, the “grandfathering” of certain initiatives, the interaction with other Commonwealth legislation such as taxation and social security, and the distribution of regulatory functions, have all contributed to a more complex regime than was perhaps anticipated. (sub. 41, p. 3)

Industry Funds Forum: We support the current regulatory framework because it

represents an appropriate balance between on the one hand the need to protect superannuation fund members’ savings and the need for broad community support for superannuation, and on the other hand the need to ensure that whatever regulatory regime that is in place is efficient and facilitates an appropriately competitive market. (sub. 10, p. 1)

PricewaterhouseCoopers: Our general consensus [of a discussion group] is that the

Superannuation Industry (Supervision) Act 1993 (SIS Act) is pro-competitive and provides a comprehensive legal framework for the good management of members’ interests by Trustees. (sub. 14, p. 6)

Small Independent Superannuation Funds Association Ltd: … the present legislation

can be considered to provide a fundamentally sound framework for achieving the broad policy objectives of retirement incomes in Australia. … however, the legislation seems to have become bogged down in too much detail as a result of all the amendments to it. Many of these amendments have only served to introduce restrictions, more prescriptive measures and complexities to the superannuation system. (sub. 13, p. 1)

William M Mercer: Compliance effectively impacts on every transaction in some way or

other. Whilst compliance with SIS is a significant issue, compliance for tax purposes is even more significant. By far the greatest compliance issue is the superannuation surcharge. (sub. 8, p. 7)

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XX OVERVIEW

Options for modifications to the SIS legislation

By and large, the SIS legislation is an effective framework for the prudent management of fund members’ interests. Nonetheless, it is complex, lengthy and has been subject to continuous change. As a result, there is reason to consider how it might be improved, including whether comprehensive changes might be justifiable.

Consequently, the Commission has identified four legislative options which could improve the cost-effectiveness of the SIS Act. These are:

1) improve the specific areas of the legislation which either limit competition unduly or add significantly to compliance costs;

2) enhance the licensing arrangements for superannuation entities by changing the conditions to be met by their trustees;

3) remove the need for corporations that are currently complying with the Managed Investments Act 1998 and the Life Insurance Act 1995 to comply with relevant requirements under the SIS legislation; and

4) revise the overall structure of the legislation.

The second and third options could be combined with the first, whereas the fourth is of a different nature and would involve more fundamental changes to the SIS legislation.

1 Improve specific areas of the SIS legislation

Under this option, the Commission has considered possible modifications to provisions of the SIS Act which have an impact on competition and compliance costs in the superannuation industry.

Restrictions on competition

The restrictions on competition contained in the SIS legislation are not extensive. Competition in most segments of the industry appears to be relatively strong. Nonetheless, the Commission has identified some provisions which could restrict competition. These are requirements about who can become a trustee, a custodian, an auditor or an actuary to a regulated superannuation entity. The broad objective of the requirements is to enhance the prudent management of superannuation entities for the benefit of members in circumstances where:

• members are not equally represented on the trustee board and the trustee provides the service on a commercial basis;

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• custody of the fund’s assets is provided by external service providers such as investment managers or independent custodians; and

• specialised expertise is required to undertake auditing and actuarial tasks.

The following table summarises the requirements which can have the effect of limiting the supply of services to superannuation funds.

Table 2 Selected elements of entry requirements applying to the provision of services to superannuation funds

Service Entry requirements

Approved trustee of public offer entities, approved deposit funds, or small APRA funds

Approved trustee to satisfy APRA that it:

• can perform the duties of a trustee in the proper manner and

• has $5 million in net tangible assets (NTA)

- in own right (mandatory for small APRA fund) or - as an approved guarantee or

- as a combination of NTA and approved guarantee or

• agrees to comply with requirements on custody of assets and

• meets conditions specified in Instrument of Approval which are tailored on a case-by-case basis and include

- at least $100 000 of eligible assets and of liquid assets and

- adequate contingency plan and insurance.

• responsible officers pass disqualified person test. External custodianship Trustee to be satisfied that:

• custodian has $5 million NTA or

• approved guarantee where sum of it and NTA is not less than $5 million and

• responsible officers pass disqualified person test. Audit: financial and

compliance

Approved auditor is:

• Auditor General of Commonwealth, State or Territory or

• registered auditor under Corporations Law who is associated in a specific manner with a recognised professional body or

• approved by regulator. Actuarial certificates Approved actuary is:

• fellow or accredited member of the Institute of Actuaries of Australia.

The Commission considers that legislative restriction of competition is necessary in most cases in order to confine the execution of certain tasks to suitably qualified professionals. It considers that the costs of the existing requirements which restrict entry are likely to be small.

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XXII OVERVIEW

Nonetheless, some provisions in the Act could be made more effective. For example:

• trustees of all superannuation funds regulated by APRA should be required to prepare and obtain APRA approval for a risk management strategy which addresses the various risks faced in management of the funds, such as operational, financial and governance risks.

• for approved trustees, capital adequacy and liquidity requirements should be amended so that they are linked with the assets under management in a manner similar to the responsible entity requirements in the Managed Investments Act; and

• the requirement that only accountants who have certain qualifications can be responsible for compliance audits should be reviewed.

The net tangible assets requirement for approved trustees should be strengthened through legislative amendment. All approved trustees which use an external custodian should be required to have an amount of net tangible assets (or approved guarantee or combination thereof) that is related to the value of assets under trusteeship, subject to specified minimum and maximum amounts in a manner similar to that required under the Managed Investments Act. Approved trustees which do not use custodians should continue to be required to have $5 million net tangible assets (or equivalent) in their own right.

(Recommendation 4.1)

The eligible and liquid assets requirements for approved trustees should be revised so as to require all approved trustees to have sufficient liquidity. The requirement could be cast in terms similar to that required of responsible entities under the Managed Investments Act. (Recommendation 4.2)

All trustees of superannuation entities regulated by the Australian Prudential Regulation Authority should be required to prepare a risk management strategy which addresses the various risks faced in the management of funds, such as operational, investment and governance risks. Trustees should be required to obtain approval of these strategies from the Australian Prudential Regulation Authority and have them audited each year as part of their compliance audits.

(Recommendation 4.3)

The Australian Prudential Regulation Authority, in conjunction with relevant parties, should review the need to confine the responsibility for a compliance audit to an approved financial auditor. (Recommendation 4.4)

The Australian Prudential Regulation Authority, in conjunction with relevant parties, should review the need to confine certain tasks in respect of accumulation

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funds to Members or Fellows of the Institute of Actuaries of Australia.

(Recommendation 4.5)

Compliance costs

Superannuation funds’ operations involve administration and investment management costs. These have been declining for several years. The available information indicates that total costs represent around 1.3 per cent of the funds under administration or $200–300 per account per annum. Compliance with the legislation under review comprises a small but not insignificant part of total administration costs. While administration costs have been declining, this does not necessarily mean that the compliance costs have been falling.

The Commission has identified a number of the provisions under review which impose significant compliance costs on fund trustees. These include:

• procedures for verifying the age and employment status of members in relation to contributions and benefit payments;

• provisions protecting small account balances, lost members and non-resident benefits;

• risk management statements; and

• the requirements for certain actuarial certificates.

In each of those areas, the Commission considers that the objectives of the legislation could be achieved by more cost-effective means, although in some cases the possible scope for abuse of taxation concessions would need to be considered.

Contributor status and payment standards

The contributions and payment standards are complex. Trustees and administrators are required to cope with a range of criteria against which the status of fund members must be assessed frequently for both contributions and benefit payments. For example, voluntary contributions can only be accepted if:

• people aged under 65 have worked at least 10 hours in one week over the last two years; and

• people aged between 65 to 70 have worked at least 10 hours in each week.

Voluntary contributions for people aged over 70 cannot be accepted.

Similarly, different employment tests determine when benefits must be paid to people aged between 65 and 70 and those aged over 70.

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XXIV OVERVIEW

These requirements add significantly to the operating costs of funds in monitoring contributions and payment obligations, with eventual effects on members’ benefits. Modification of the requirements would reduce compliance costs. For example, voluntary contributions up to age 70 could be allowed regardless of a contributor’s employment status.

Age and employment requirements governing contributor status and compulsory cashing of benefits should be simplified. The most effective means of doing so would be removal of the employment tests, while limiting any adverse implications for taxation revenue by measures such as reasonable benefit limits and age-based deductible limits. Consideration should also be given to raising the age at which benefits must be compulsorily cashed. (Recommendation 5.1)

Benefit protection

Benefit protection applies to small and lost member accounts. The provisions involve significant compliance costs for funds. While of benefit to the account holders concerned, the costs are borne by other fund members. Small accounts with benefits of less than $200 may be cashed out. However, member balances of less than $1000 are to be protected from erosion by fees and charges. This makes account processing and record keeping more expensive. Lost member accounts are also to be protected, regardless of the amounts involved. Currently, there are around 4 million lost member accounts, containing around $5.5 billion.

In both cases, trustees have the choice of either retaining such accounts in the fund or transferring them to another supervised fund which will protect them, such as an Eligible Rollover Fund. Trustees are required, however, to take certain steps to locate a lost member before an account can be transferred.

The Commission finds that protection of small account balances and of lost members is warranted. It considers, however, that compliance costs could be reduced by removing the postal address verification requirements for lost members and the protection of lost member accounts with balances in excess of $1000 (which, in effect, protects them from administration costs in times of low investment returns). The latter change would remove the more favourable treatment accorded to such members than to those with equivalent account balances who are not ‘lost’.

The present requirement on trustees to verify the addresses of all lost members should be removed. Protection of lost member accounts with balances in excess of $1000 should also be removed. (Recommendation 5.2)

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Non-resident benefits

In addition, the balances in non-residents’ accounts are required to be preserved. This can involve compliance costs for funds similar to those associated with small and lost member accounts, but which may be higher because the member resides overseas. Typically, these balances accrue to tourists on a working holiday where their employer contributions are paid into a complying Australian superannuation fund. The compliance costs associated with this provision could be reduced by permitting non-residents, on permanent departure from Australia, to obtain benefits that are below a specified small limit. For amounts above that limit, access could be available subject to a taxation adjustment to offset Australian tax concessions.

Superannuation benefits of bona fide non-resident employees below a specified small limit should be available to non-residents on permanent departure from Australia. Amounts above that limit should be subject to a taxation adjustment to offset Australian tax concessions accorded to superannuation.

(Recommendation 5.3)

Risk management statements

The current requirements for risk management statements to accompany the use of derivatives in a funds investment strategy, while warranted as a means of enhancing prudent management, appear to involve unnecessary costs. The specified content of the statements includes considerable technical detail which can make them difficult for trustees to comprehend. These statements are also required to be prepared by trustees even when their investment managers have already done so. The costs involved in meeting these requirements could be lessened by reducing the extent of prescription of content and removing the duplication involved in preparation of risk management statements for compliance audits.

Requirements governing the content of risk management statements related to investment in derivatives should be simplified in order to reduce compliance costs and to sharpen the prudent management focus of trustees. The present requirement that such statements be prepared by both investment managers and trustees for compliance audit purposes should be reviewed in order to remove any unnecessary duplication. (Recommendation 5.4)

Actuarial certificates

A number of different types of actuarial certificates are required of superannuation entities, in order to ensure the availability of members’ defined benefit and pension payment entitlements. They include funding and solvency certificates for defined

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XXVI OVERVIEW

benefit funds and the certification of superannuation entities’ capacity to pay pensions under the SIS legislation, and valuation certificates of income streams under the deprivation provisions of the social security legislation. Some of the circumstances which are prescribed as requiring such certificates (for example, in the event of significant salary increases for a defined benefit fund which is nonetheless in a very sound financial position) appear to impose unnecessary costs and consideration needs to be given to simplifying them.

The requirements for actuarial certificates should be simplified by the Australian Prudential Regulation Authority, in consultation with the Institute of Actuaries of Australia, the Department of Family and Community Services and the Australian Taxation Office. (Recommendation 5.5)

These changes to provisions affecting compliance costs are piecemeal in nature, but they would make it easier for trustees to comply with the objectives of the legislation. They would also help to ensure more prudent management of member interests. Taken together, these compliance cost recommendations would result in benefits to fund members to the extent that lower administration costs augmented the net income of funds. Many participants supported these proposed changes. They attached particular importance to the simplification of contribution and benefit payment rules, and small account balances and lost member requirements.

Other regulatory issues

Lodgment period

In recent years, APRA has requested superannuation entities to lodge audited annual returns with it within four months of the end of the financial year. Previously, corporate and small APRA funds had six and nine months, respectively, to lodge their returns. The purpose of this reduced lodgment period is to enhance prudential supervision of funds by enabling the regulator to identify problem areas more promptly. To date, some 70 per cent of funds have been able to meet the shortened lodgment period.

Many participants expressed concern about the costs of complying with this amended arrangement because of the workload imposed on accountants and administrators in a short period. Nonetheless, there is good reason to apply as short a period as feasible to the lodgment of annual returns. A four-month lodgment period appears appropriate. If difficulties faced by certain funds in complying with this period prove intractable, consideration could be given to means of alleviating the problem, such as by requesting the ATO to allow a different income reporting

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period for some funds. This would enable the annual workload to be spread more evenly.

Administration of the SIS Act

The administration of the SIS Act is now divided between APRA, ASIC and the ATO following the introduction of new regulatory arrangements for the financial sector three years ago. For some participants, the new arrangements raised concerns about the respective role and responsibilities of the different regulators. It is to be expected that, with the new arrangements based on regulatory function as opposed to type of institution, there would occasionally be uncertainty, inconsistent approaches and possible gaps and duplication. The regulators have taken steps to reduce such problems. Nonetheless, the Commission considers that APRA and ASIC should continue their efforts to improve coordination of their activities, such as site visits, with a view to reducing the additional costs which appear to have arisen.

Exempt public sector superannuation schemes

The SIS legislation provides for public sector superannuation schemes which did not comply with its provisions when it was introduced to be exempt from compliance, but to be treated as complying funds for income tax and superannuation guarantee purposes. The exemption enables the governments concerned to avoid a number of difficulties (such as some funds being unfunded) that they would otherwise face in bringing these schemes into full compliance with the SIS Act.

All governments agreed that they would use their best endeavours to ensure that exempt schemes would be ‘treated fairly and equally with their private sector counterparts’ and that the Commonwealth Government’s retirement income objectives would be met in respect of scheme benefits. However, this has not always been done. Some of the exempt schemes, for example, do not appear to be consistent with the SIS Act’s provisions for the preservation of benefits. The Commission considers that steps should be taken to restrict the scope for such divergences from the provisions of the SIS legislation.

There should be no expansion of the current list of exempt public sector superannuation schemes. Consideration should be given by Commonwealth, State and Territory governments to the feasibility of closing exempt schemes which are open to new members and electing to make any new schemes subject to the SIS legislation. (Recommendation 6.1)

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XXVIII OVERVIEW

2 Enhance licensing of superannuation entities

This option would require all superannuation entities to be licensed, and their trustees to meet certain entry and operating standards (such as their capacity to manage an entity and to provide a risk management strategy). Present entry requirements for superannuation funds and trustees are not substantial and raise a question about whether they address adequately the prudent management objective of the legislation.

Superannuation entities are the only part of the financial services sector which are not required to be licensed in a formal manner in order to deal with other peoples’ assets. This appears unsatisfactory given that superannuation assets now comprise some 15 per cent of private sector wealth.

While this option would involve some initial increase in administration and compliance costs, and could result in a decline in the number of competitors, it would have significant benefits. By requiring higher standards of trustees, it should enable APRA and fund members to be more confident that superannuation savings are prudently managed. It would also assist APRA to identify more readily the population of superannuation entities. In addition, APRA would be able to target more effectively its supervision of funds to areas of identified weaknesses.

The SIS legislation should be amended to require that trustees of superannuation entities be licensed by the Australian Prudential Regulation Authority subject to specific conditions pertaining to such matters as trustee capacity and the provision of a risk management strategy. The Government and the Australian Prudential Regulation Authority should consult widely on the details of such a licensing arrangement. (Recommendation 7.2)

3 Remove duplication of compliance with the SIS Act for certain corporations

This option is intended to reduce duplication between the SIS Act and the Managed Investments and Life Insurance Acts faced by certain providers of superannuation — essentially the large retail funds and life insurance companies. The costs arise mainly from the need for these companies to interpose a trust structure which can complicate significantly their governance arrangements in order to comply with the SIS Act. While there are areas of similarity in these Acts, there are also differences. As a result, the extent of the possible reduction in compliance costs, and the benefits to consumers, are uncertain. Nonetheless, harmonisation of relevant parts of these Acts would bring some benefits.

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This option raises a number of issues. For example, it is not clear that the licensing requirements of the Managed Investments Act are as robust as corresponding provisions in the SIS Act. Moreover, there would need to be clear criteria against which to determine which responsible entities should benefit from this alternative. An understanding would need to be reached between ASIC and APRA so that the latter could be assured that entities deemed to have complied with the Managed Investments Act could be accorded compliance with the SIS Act. There would not be such a problem in respect of life offices, which are regulated by APRA.

Duplication between the SIS legislation and the Managed Investments Act should be reviewed jointly by the Australian Prudential Regulatory Authority and the Australian Securities and Investments Commission. The aim of such a review should be to encourage consistency between the two regimes in their application to providers of retail investment products. (Recommendation 7.3)

The Australian Prudential Regulation Authority should review the possibility of removing the need for life insurance companies which write superannuation business in their statutory funds to comply with the prudential requirements of the SIS legislation. (Recommendation 7.4)

4 Revise the structure of the legislation

This option would involve a fundamental restructuring of the SIS legislation along the lines of what currently applies to deposit-taking institutions under the Banking Act 1959 and to general insurance under the Insurance Act 1973. It would involve a change in the emphasis given to each of the three tiers of regulation — legislation, regulations and explanatory guidelines. The legislation would include only broad objectives and powers, with greater reliance on regulations and explanatory guidelines to specify the operating standards.

This approach would permit more flexible and timely responses by regulators to market developments and would reduce the complexity of the legislation itself. However, it might not reduce overall complexity and compliance costs because the detailed requirements presently contained in the Act would be shifted to the regulations.

Another possible disadvantage would be that, by giving APRA increased discretion to determine standards, the option could contribute to greater uncertainty amongst superannuation entities. Such uncertainty could create problems for a very long-term investment such as superannuation if funds were subject to unpredictable changes in compliance requirements.

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XXX OVERVIEW

The suitability of this option for the superannuation industry, with its large and diverse composition, would also need to be considered. The banking and general insurance sectors have fewer entities and are more homogeneous.

The introduction of the Financial Services Reform Act, which will require consequential amendments of the SIS Act, provides an opportunity to implement this option. However, the Commission does not consider that this would be beneficial overall.

Preferred option

The Commission’s preferred option is a combination of the first two, which involve improvements to specific areas of the SIS legislation and enhanced licensing of superannuation entities. These would:

• remove some unnecessary restriction of competition;

• reduce the costs of complying with the SIS Act; and

• facilitate better management of funds and more effective supervision of them.

The result should be some gains in terms of members’ retirement income levels and, for the community, more cost-effective regulation of superannuation.

The SIS legislation should be amended to simplify certain complex requirements which impose significant compliance costs, to increase competition amongst providers of certain services to superannuation entities, and to enhance the effectiveness of capital adequacy and other requirements imposed on trustees. Specific proposals for change are contained in the recommendations given above and in chapters 4 and 5. (Recommendation 7.1)

The SIS legislation should be amended to require that trustees of superannuation entities be licensed by the Australian Prudential Regulation Authority subject to specific conditions pertaining to such matters as trustee capacity and the provision of a risk management strategy. The Government and the Australian Prudential Regulation Authority should consult widely on the details of such a licensing arrangement. (Recommendation 7.2)

The Commission considers that features of options 3 and 4 would probably lead to improvements in the regulatory framework for prudent management of funds. In each case, however, associated conceptual and practical difficulties could outweigh the gains.

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Other legislation under review

Resolution of complaints

The Superannuation (Resolution of Complaints) Act 1993 established a statutory body, the Superannuation Complaints Tribunal, to resolve complaints which cannot be settled between superannuation fund members and trustees. The Commission considers that, as an alternative to reliance on the court system, the Tribunal provides a cost-effective external means for resolving disputes. The Tribunal has wide support within the superannuation industry. It operates independently and transparently, and is accountable to Parliament on an annual basis. It also provides useful information to APRA.

The Commission considers that there is scope to reduce the cost of external disputes resolution through more efficient use of internal mechanisms for handling inquiries and complaints. At present, over half of the written complaints received by the Tribunal are outside its jurisdiction, frequently on grounds that the complaint has not first been considered by the fund’s internal complaints processes. This involves avoidable costs and delays. The existing disclosure mechanisms contained in the SIS Act, while requiring trustees to provide fund members with certain information about the existence and functions of the Tribunal, do not oblige trustees to outline the types of complaints identified in the Resolution of Complaints Act as falling outside the Tribunal’s jurisdiction.

Trustees should provide members with information about the categories of complaints that are excluded by legislation from consideration by the Superannuation Complaints Tribunal. (Recommendation 8.1)

Since the Superannuation Complaints Tribunal was created, several non-statutory industry-based external disputes resolution schemes have developed and been approved by ASIC. Industry-based schemes are required to meet strong minimum standards of independence, integrity and current relevance in order to gain, and maintain ASIC approval.

Against this background, the Commission has concluded, for the following reasons, that ASIC-approved industry-based schemes would provide a more efficient alternative to the Superannuation Complaints Tribunal:

• the regulatory framework with which these schemes must comply means that they have many features equivalent to those of the Tribunal (for example, independence, transparency and provision of information to regulators);

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XXXII OVERVIEW

• the time taken by industry schemes to resolve complaints compares favourably with that taken by the Tribunal;

• in some important respects, industry schemes operate more efficiently than the Tribunal. In particular, they use a system of charges on their industry members which creates a strong incentive for them to resolve complaints internally or in the early stages of the external dispute resolution process, with the result that fewer resources are needed to resolve complaints;

• industry schemes also appear to have an advantage in terms of the flexibility of their operations (for example, as regards the response of their budgetary processes to changes in their workload); and

• they are subject to regular independent review.

The fact that the Tribunal’s legislation has an advantage for complainants in that it imposes no monetary limit on complaints within its jurisdiction and that any change to existing arrangements for resolution of superannuation complaints would involve some transitional costs do not outweigh the above considerations.

The Superannuation (Resolution of Complaints) Act 1993 should be repealed, subject to some transitional arrangements.

All superannuation entities regulated by the Australian Prudential Regulation Authority should be required to join a disputes resolution scheme approved by the Australian Securities and Investments Commission. This should be mandated as part of the compliance requirements of those superannuation entities.

(Recommendation 8.2)

The Commission does not see that there is a need to be prescriptive about which disputes resolution scheme superannuation entities should join, other than that funds should join an appropriately licensed body. This is consistent with the provisions contained in the Financial Services Reform Act and in ASIC Policy Statement 139, which would promote consistency among such schemes across the financial services sector.

If the recommendation was adopted, the Tribunal would not be precluded from seeking to re-establish itself as an approved disputes resolution scheme with funding being provided directly by industry.

If it was decided to retain the Resolution of Complaints Act, the Commission considers that some aspects of the Tribunal’s operation should be modified. In particular, a more incentive-based system for charging for its resolution of complaints should be introduced, there should be discretion to extend the statutory time limit for consideration of appeals on disability payments and discretion should

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be provided to the Chairperson on the naming of parties to complaints handled by review.

The Superannuation (Resolution of Complaints) Act 1993 should be amended for the following purposes:

to enable the Superannuation Complaints Tribunal to implement an incentive-based system of charging superannuation entities for its resolution of complaints;

to give the Tribunal discretion to extend beyond one year the time limit for its decision on complaints against trustees’ actions on disability payments; and

to give the Chairperson of the Tribunal discretion to name parties to complaints reviewed by it. (Recommendation 8.3)

Financing assistance in some ‘failure’ situations

The Superannuation (Financial Assistance Funding) Levy Act 1993 provides for the imposition of a levy on certain superannuation entities for funding financial assistance to APRA-regulated superannuation entities that suffer substantial loss as a result of fraud or theft. The Act is closely related to part 23 of the SIS Act, which provides for financial assistance to be made through a Commonwealth grant. The Government is considering some recent applications for assistance made under part 23, but the provisions of the Levy Act have not yet been used. Nonetheless, the Levy Act appears to provide an effective mechanism, if needed, for imposing a levy to finance any assistance given.

The SIS Act requires the Minister to seek advice from APRA when considering a request for financial assistance, and to table that request for advice in the Parliament. It does not require APRA’s advice, or the reasons for the Minister’s decision, to be tabled.

The Commission believes that the process of deciding whether to grant financial assistance in the event of fraud or theft should be more transparent.

Part 23 of the Superannuation Industry (Supervision) Act 1993 should be amended to require the Minister to table in Parliament, as soon as practicable, the Australian Prudential Regulation Authority’s advice and the reasons for the Minister’s decision on whether to provide financial assistance to funds which suffer substantial loss from theft or fraud. (Recommendation 9.1)

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XXXIV OVERVIEW

Funding the supervision of self managed superannuation funds

The Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 specifies that trustees of self-managed superannuation funds are liable to pay a levy on lodgment of their annual returns to the ATO, and sets out related administrative aspects such as penalties for non-lodgment and late lodgment. The Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 imposes the levy and sets maximum amounts for it and the late lodgment penalty. The Regulations deriving from this Act set the actual amounts currently payable.

The levy collects revenue to fund the supervision of self-managed superannuation funds by the ATO. The ATO monitors and enforces compliance by such funds with the relevant provisions of the SIS Act. This involves receiving and processing annual returns, investigating funds’ compliance with the Act and enforcing compliance as necessary.

The Commission considers that it is appropriate for the supervision of self-managed funds to be funded by a levy imposed on them, on a full cost recovery basis, and that legislation is necessary to implement this. The Commission does not recommend any changes to these Acts. It believes, however, that the costing of the ATO’s supervision should be fully transparent.

The Australian Taxation Office should publish the component costs of its regulatory supervision of self-managed superannuation funds to ensure public accountability. (Recommendation 9.2)

The Occupational Superannuation Standards Regulations Application Act 1992

The Occupational Superannuation Standards Regulations Application Act 1992 was enacted to overcome uncertainty about the validity of certain regulations made under the Occupational Superannuation Standards Act 1987 to accommodate the introduction of the Superannuation Guarantee Scheme. It clarified certain circumstances in which contributions could be accepted by a superannuation fund, limited the rate of increase of benefits vested in a member of a fund and established requirements relating to information to be given to an employer contributor and to the regulator. While the Occupational Superannuation Standards Regulations Act was considered to be necessary at the time, it no longer has any application and should be repealed.

The Occupational Superannuation Standards Regulations Application Act 1992 should be repealed. (Recommendation 9.3)

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* * * * * *

The scope of this inquiry is relatively narrow, focussing for the most part on the legislation governing prudent management and supervision of superannuation funds. During the course of the inquiry, some participants have expressed dissatisfaction that broader issues of superannuation policy (covered by other legislation) are excluded. It has become clear to the Commission that, complex as the SIS Act is, superannuation policy overall is even more difficult for practitioners to implement and for members of the community to comprehend.

Piecemeal legislative changes involve a risk of overlooking connections between various elements of policy and are unlikely to deal satisfactorily with the difficulties faced at present by those supplying and investing in superannuation assets. A more wide-ranging review which considers the above matters in an integrated way would be likely to lead to better design and implementation of superannuation policy and enhanced community understanding of how to use superannuation as a form of saving for retirement income.

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XXXVI OVERVIEW

Recommendations

Approved trustees

The net tangible assets requirement for approved trustees should be strengthened through legislative amendment. All approved trustees which use an external custodian should be required to have an amount of net tangible assets (or approved guarantee or combination thereof) that is related to the value of assets under trusteeship, subject to specified minimum and maximum amounts in a manner similar to that required under the Managed Investments Act. Approved trustees which do not use custodians should continue to be required to have $5 million net tangible assets (or equivalent) in their own right.

(Recommendation 4.1, p. 51)

The eligible and liquid assets requirements for approved trustees should be revised so as to require all approved trustees to have sufficient liquidity. The requirement could be cast in terms similar to that required of responsible entities under the Managed Investments Act. (Recommendation 4.2, p. 54)

All trustees

All trustees of superannuation entities regulated by the Australian Prudential Regulation Authority should be required to prepare a risk management strategy which addresses the various risks faced in the management of funds, such as operational, investment and governance risks. Trustees should be required to obtain approval of these strategies from the Australian Prudential Regulation Authority and have them audited each year as part of their compliance audits.

(Recommendation 4.3, p. 56)

Auditors

The Australian Prudential Regulation Authority, in conjunction with relevant parties, should review the need to confine the responsibility for a compliance audit to an approved financial auditor. (Recommendation 4.4, p. 66)

Actuaries

The Australian Prudential Regulation Authority, in conjunction with relevant parties, should review the need to confine certain tasks in respect of accumulation funds to Members or Fellows of the Institute of Actuaries of Australia.

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Contributor status and payment standards

Age and employment requirements governing contributor status and compulsory cashing of benefits should be simplified. The most effective means of doing so would be removal of the employment tests, while limiting any adverse implications for taxation revenue by measures such as reasonable benefit limits and age-based deductible limits. Consideration should also be given to raising the age at which benefits must be compulsorily cashed. (Recommendation 5.1, p. 80)

Lost members’ benefit protection

The present requirement on trustees to verify the addresses of all lost members should be removed. Protection of lost member accounts with balances in excess of $1000 should also be removed. (Recommendation 5.2, p. 85)

Non-resident benefits

Superannuation benefits of bona fide non-resident employees below a specified small limit should be available to non-residents on permanent departure from Australia. Amounts above that limit should be subject to a taxation adjustment to offset Australian tax concessions accorded to superannuation.

(Recommendation 5.3, p. 88)

Risk management statements

Requirements governing the content of risk management statements related to investment in derivatives should be simplified in order to reduce compliance costs and to sharpen the prudent management focus of trustees. The present requirement that such statements be prepared by both investment managers and trustees for compliance audit purposes should be reviewed in order to remove any unnecessary duplication. (Recommendation 5.4, p. 91)

Actuarial certification

The requirements for actuarial certificates should be simplified by the Australian Prudential Regulation Authority, in consultation with the Institute of Actuaries of Australia, the Department of Family and Community Services and the Australian Taxation Office. (Recommendation 5.5, p. 105)

Figure

Figure 1 Superannuation assets, June 1983 to June 2001
Table 1 The superannuation industry, June 2001
Figure 2.1 Superannuation coverage, 1983 to 2000
Figure 2.2 Superannuation assets, June 1983 to June 2001
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